Журнали

Практика МСФЗ 28 вересня, 2020
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«With the help of artificial intelligence, auditors can do more at a reduced cost»

The auditing profession is increasingly being criticized. The pressure on auditors is exacerbated by scandal corporate bankruptcies, which auditors have been unable to warn about. Society, dissatisfied with such economic cataclysms, demands change. As is often the case, the United Kingdom has become the generator of reforms in Europe. It is there that the most radical changes in the system of audit regulation are taking place. That is why we asked for comment from a well-known English expert from Sheffield Hallam University, Dr. Ifedapo Francis Awolowo.

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Dr Ifedapo Francis Awolowo PhD, MRes, MSc, BSc, CPA, FAIA, CFE,
Lecturer in Financial & Management Accounting at Sheffield Hallam University

 

The Financial Reporting Council forces large audit firms to separate audit from other services. Will this strategy improve the quality of the audit?

I. А: This is a welcome development by the FRC and one that has been long overdue. To a large extent, this strategy should improve audit quality in the sense that it should reduce the conflict of interest that auditors face when they offer other services to the same client they audit. However, I do not think this is enough in the fight against financial deception. I am also worried about the time frame given to the big four to implement this 1.

Four years are allotted for the complete separation of the audit

Some MPs suppose  that audit profession must be stand-alone,  rather than as an adjunct to the accounting profession. But in fact, such a separation already exists. What results can deepening the autonomy of the audit profession bring?

I. А: As you said, the separation already exists, and this is where our opinion about creating a separate corporate auditor as proposed by the Brydon report  2 differs. The Brydon report recommended creating a separate corporate auditor with a mandate for detecting fraud in the financial statement. But we believe within the current framework, what is needed is not a separate corporate auditor but auditors that can detect fraudulent reporting by embracing the use of forensic accounting procedures. That is what I think is needed. Auditors mandate is what needs to change and what is needed in that mandate is to accept the full responsibility for the detection of fraud in the financial statement. This, I believe, will improve audit quality, reduce financial statement fraud, the sudden collapse of companies without any warning signs. Joseph Wells 3 once said that accountants are not stupid nor crook, but the majority of them are ignorant about fraud. The audit profession has drafted untrained auditors against sophisticated lairs and thieves. Until auditors are better trained in forensic accounting skills, ethics, principles and accept full responsibility for detecting fraud in the financial statement, the way and manner in which fraud is hidden in complex financial transactions will continue to threaten the integrity of financial reporting and corporate governance.

Joseph Wells is the author of the famous guide to investigating corporate fraud.
Sir Donald Brydon has published his final report setting out his personal views on the quality and effectiveness of audit in December 2019.

You and your colleague from Sheffield Business School, Professor Nigel Garrow, said auditors should accept full responsibility for detecting fraud in financial statements. Will this lead to higher prices for auditing services?

I. А: The issue here is in two-fold. First, if auditors take full responsibility for the detection of fraud in the financial statement, this will improve audit quality and reduce financial shenanigans. Secondly, the change of mandate will shape how auditors are educated. At the moment, they are trained to identify departures from accounting standard. Should their mandate change, it means they will need to adopt more forensic accounting procedures which will be incorporated in their training to do a better job. If how auditors are educated changes, the cost of an audit should not necessarily increase because the change is driven through education. At the same time, I understand that audit firms are businesses, and there are certain requirement in the market place in terms of covering their overheads and the time required to complete an audit. But with the help of artificial intelligence, auditors can do more at a reduced cost. We believe that even if the cost of the audit will increase slightly as a result of accepting full responsibility for the detection of fraud in the financial statement, the benefit will outweigh the cost as there will be fewer corporate collapses and financial statement fraud because auditors will be able to identify the warning signs early enough.

№ 9, 2020  (с. 16)
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